Friday, 10 July 2009

Understand your credit rating

posted by debts.org at 04:59

Who has a right to credit?

In these days of credit crunch and recession, more people than ever are applying for credit, and more people than ever are being refused. Lenders use their own methods of checking borrowers´ criteria before they decide whether or not to lend you money. Credit reference agencies supply data to the lenders about your circumstances. If you are struggling financially, you may find a debt management plan or an Individual Voluntary Arrangement is better for you than more credit.

What can a credit reference agency do?

A credit reference agency is a commercial company which gathers information from different sources, including the electoral role and financial institutions about individuals applying for credit. They may also check county court judgements which have gone against you. They then sell this information to lenders who will use it to help decide whether to grant you credit. The three main credit reference agencies in the UK are: Call Credit, Experian and Equifax. Before applying for credit, make sure you can afford to pay your existing loans/debts. If you are struggling with finances, you should contact a debt management company who may recommend a debt management plan or an Individual Voluntary Arrangement to help you, rather than applying for more credit.

What information do credit reference agencies have?

Credit reference agencies hold personal information from previous credit applications, including: your date of birth and your current and previous addresses. Your credit history is the main part of the report, and this lists the date any credit accounts were opened, the credit limit or loan amount at the time, and whether you defaulted on any payments. Account details stay on your report for six years after you complete on a loan or finish paying a credit card.

Recording a credit search and debt management plans

Agencies record a credit search every time your credit report is observed, such as when you apply for a loan or buy an item which has interest free credit. Searches will stay on your credit report for two years. Although your file records the name of your current account provider, it will not show further details, unless they are relevant to you applying for further credit. Public record information may also be included such as house repossession, county court judgements and bankruptcy. Personal information such as religion, medical history or criminal records is not included.

What are lenders looking for when I apply for a loan?

You are likely to be asked details of your income, assets and employment status before a loan will be granted. By using information from credit reference agencies, lenders will assess how much of a risk they are taking if they lend you money. You can struggle to be granted a loan if you are not on the electoral role, or if you have not had credit before, so that no record of regular repayments can be shown. You may also have trouble getting a personal loan if the lender thinks you already have too many loans or credit cards. If you are turned down by one lender, it doesn´t necessarily mean you will be turned down by another, so be prepared to shop around. Personal loans serve a useful purpose if you can comfortably afford to pay them back, but don´t rush into anything without checking the small print and without checking other options if you are in debt, such as a debt management plan or an Individual Voluntary Arrangement.

What are my options if I am refused credit?

Nobody is under any legal obligation to lend you credit. You may be turned down altogether, or offered a sum of money much less than you applied for. If, however you have relevant information that could swing the balance in your favour, you should present this to your lender when you apply for the loan. The lender must tell you the name of the credit reference agency which supplied them with your personal information.

How can I check my file with a credit reference agency?

It is always a good idea to check your file regularly, maybe once every 12 months to make sure that information held is correct. Even if you have not been refused credit before, you should keep a relatively close eye on your credit file. Under the Data Protection Act, Experian, Call Credit and Equifax must, by law, provide you with a statutory credit report for a nominal fee of £2. Once you have sent the agency your date of birth, all addresses for the past 6 years and your full name, you will be sent a report containing your basic credit file. A higher fee may give you continuing access to your file.

What to do if there is a mistake on your credit file

You can dispute the inaccurate information on your credit file and insist that errors are corrected. Accurate information cannot be removed however. If family members are listed on your file, with whom you have no financial connection, you can ask the creditor to remove them. Incorrect information should be removed within 28 days. If you can´t resolve the matter directly with the creditor, then ask the credit reference company to look into your file. If the credit reference agency does not reply within 28 days, you can ask the Office of the Information Commissioner to investigate whether the Data Protection Act has been breached. Thousands of people find themselves in debt every year with credit companies, and you should remember you have rights. If you are feeling the pinch, or seriously struggling financially you should contact debts.org, a professional debts solution company who can explain your debt solution options. Debt management programmes and Independent Voluntary Arrangements may be far preferable to you than extra bank loans and credit.

What to do if there is evidence of fraud on my credit report

If you suspect fraud on your credit rating report, you should contact all three credit reference agencies immediately. Request your credit file from each of them, explain that you suspect fraud and ask that an alert be noted on your file. Take advice from them about whether to inform the police or not.

Are credit repair firms genuine?

A large number of firms promise to ´repair´ your credit for a fee, but the Financial Services Authority says you should beware of using such services. Under the Data Protection Act, credit reference agencies are obliged to correct mistakes made or add a correction notice to your file without charge. And remember, the National Debtline and the Consumer Credit Counselling Service can offer free advice about dealing with debts, county court judgements and credit loans. Debts.org can arrange professional advice and point you in the right direction to help solve your debt problems.

Labels: consumer credit counciling, national debt line